Taxman Treatment of Serious Hardship Cases

Serious hardship exists when payment of a tax debt would leave you unable to provide basic living necessities for yourself and your dependants.

The Tax Commissioner has the discretion to release you from eligible tax debts. However, the Tax Commissioner is not obliged to exercise the discretion in your favour, even if he is satisfied that serious hardship would result from payment of the tax debt.

The Tax Commissioner’s discretion to release an individual taxpayer from payment (in whole or in part) of a tax liability can be exercised if satisfying the liability would cause that person serious hardship. The discretion may also be exercised if the payment of a tax liability by the trustee of a deceased’s estate would cause serious hardship to the dependants of the deceased.

The tax liabilities eligible for release are as follows:

income tax

the Medicare levy

the Medicare levy surcharge

fringe benefits tax (FBT)

pay-as-you-go (PAYG) instalments

FBT instalments, and

penalties and charges (including the general interest charge and the shortfall interest charge) associated with those liabilities.

Good and services tax (GST) is not eligible for release, and neither are director liabilities arising under the director penalty regime.

Individual taxpayers and taxpayers who are operating a business as a sole trader can apply for release, but entities such as companies, trusts and partnerships cannot. An application for release from an eligible tax liability must be in the approved form. It must also be submitted with supporting documentation such as family income and assets. In particular, the supporting evidence should demonstrate how paying the tax debt would cause serious hardship.

The Commissioner’s discretion will not apply if the tax liability is merely an additional burden and the taxpayer would suffer serious hardship in any event. In other words, the taxpayer must show that serious hardship would be alleviated by the release of the tax debt.

Even if the Commissioner is satisfied that serious hardship would result from payment of the tax liability, he is not obliged to exercise his discretion in favour of the taxpayer (or trustee of a deceased person’s estate). Nevertheless, it is clear that the ATO is obliged to act reasonably and responsibly, and should not act arbitrarily or capriciously.

The Commissioner must notify the applicant in writing of his decision within 28 days after making his decision. If the Commissioner decides to release a person from a tax liability, he can take any action necessary to give effect to the decision, including amending an assessment. If the Commissioner decides not to release the debt, the person may object. If the Commissioner still refuses to release the debt, the person can seek legal measures, such as applying to the Administrative Appeals Tribunal (AAT) for a review of the Commissioner’s decision.

Serious hardship

The ATO has produced Practice Statement PS LA 2011/17 that broadly explains the Commissioner’s discretion to relieve individuals of their tax debts. A key consideration when making the decision is whether the payment of an eligible tax liability would result in “serious hardship”.

In this regard, the Practice Statement states that, if the taxpayer is left without the means to obtain food, clothing, medical supplies, accommodation, education for children and other basic requirements because the taxpayer has paid a tax liability, then this qualifies as “serious hardship”. The ATO has indicated that it would generally not expect taxpayers to sell normal and reasonable assets such as the family home, motor vehicle, household goods, tools of trade and savings for such basic necessities in order to pay tax debts.

There are no guidelines in tax law to help the Tax Commissioner determine whether serious hardship will result from the payment of a tax liability. However, PS LA 2011/17 states that the Commissioner will examine, in particular, the income, outgoing expenses, assets and liabilities of the taxpayer, either immediately or over a period of time. Ownership of assets such as holiday homes, luxury motor vehicles, boats, substantial life assurance or annuity entitlements, shares and other investments will generally be regarded by the ATO as an indication of a capacity to pay, either through disposal of the assets, or use as security for borrowings, without involving serious hardship.

In any case, talk first with Carrick Aland in Dalby, Toowoomba or Chinchilla on 07 4669 9800 about any concerns or your individual circumstances.

Recently we had our end of year finances and tax returns completed by Daniel Bartkowski. We are extremely grateful for his intuitive to look further into our finances with a positive result. Daniel is very approachable and highly professional with a wealth of knowledge within the rural sector, which we are predominately involved in. He understood our situation with ease. We highly recommend both Daniel and Carrick Aland to our friends and family.

BEN AND SUSAN JACOBS

Dan has given me advice on income protection. Dan was able to explain it all to me in a very clear manner. Through Dan’s experience and knowledge I received a very positive outcome. I always receive full care and attention from Dan when needed.

KYLIEMeridan Plains

Over the past few years my wife and I have been planning to retire. Due to our limited understanding about financial investments, we realized expert advice from a professional financial planner was a priority to achieve the best possible retirement investment outcome.

We had already established a good rapport with Carrick Aland Accountants with Wayne Turner preparing our Tax Returns for a number of years and took every opportunity to seek advice on our future goals and aspirations heading into retirement.

CHRISTOPHER & CHRISTINAWright

The services of Carrick Aland Wealth Planning have always been at the highest professional standard, offering a service that is second to none. Their personable approach and commitment to delivering the best product and services is testament to the company and will ensure I continue returning to them. Most recently my involvement with Daniel Ellis and his insurance advice was simply exceptional, he worked hard to deliver the best product at the best rate for me and was incredibly considerate and professional in all his dealings.

KIRSTY O’BRIENJournalist

I was the recipient of the Dalby Chamber of Commerce Exceptional Service Award presented to me at the Business After Hours at White Industries. I wish to thank Carrick Aland Accountants for sponsoring this award. It is wonderful to see businesses like yours support our community and provide employees opportunities to be recognised and rewarded for their hard work and dedication to their employer. Thank you for the presentation of this award.

BRIANNA CELLEDONIDalby Engine Rebuilders

There were no speed bumps when we moved to Carrick Aland and Intuitive Super. For us it was the level of Wayne’s professional finger-on-the-pulse and strategy in his thinking that he delivered, together with Daniel Ellis and Beth Hall. They put a lot of work into the final breakdown and explained the strategy. The clever part is that now our SMSF is only one part of our financial puzzle. The standout for us was Wayne maximising our SMSF to devise a strategy with a long-term view.

ROWENA AND DAMIAN

At Carrick Aland we take the time to listen, to find out what you want and need, so that we can be sure we are providing services that are actually of benefit to you.